Tag Archives | leverage

Lots of investors prefer different markets for lots of reasons. There’s not really a single answer for why any market is better than another, but today I thought I’d share three advantages of the forex market:

1. Volatility

The volatility of the forex market is sometimes cited as its biggest risk–and I won’t try to tell you that’s not true. Volatility comes with inherent risk. But just like any other investments, securities with the highest risk also come with the highest yield.

I remember my early days of trading when I’d place an order and go to sleep, only to wake in the morning and find that my hopes and dreams had been crushed overnight. Naturally, I blamed the market when I should have blamed myself. I now know that with proper risk management, as taught in Apiary’s curriculum, you can make the market volatility work in your favor!

2. Volume

So how does the increased volume of the forex market afford you an advantage? If you’ve had any experience trading other securities, you no doubt are familiar with placing an order and waiting hours, or even days, for that order to be filled. With fewer buyers and sellers in a certain market, you might not always have someone looking to fill an order–so you wait.

But forex is by far the largest market, so volume isn’t an issue. With so many buyers and sellers out there actively trading, you’ll find that you never have to wait for an order to be filled.

3. Leverage

I’ve written a bit on leverage before, but if you haven’t heard of it before, here’s a simple explanation: Think of leverage as money a broker lends to a trader to increase the trader’s buying power. In the United States, brokers can give traders fifty-to-one leverage. This means that for every dollar a trader puts into an investment, a broker will match it with forty-nine.

Leverage is a huge advantage to the forex market because it gives you more weight to throw around. Because Apiary works through a broker in New Zealand, our traders actually get 100:1 leverage. That means when a newly-funded trader starts working with a $2500 account, they’re really working with $250,000 worth!

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Traders new to the world of foreign exchange often don’t understand the very tool that makes their trading possible: Leverage. Though the concept of leverage has gotten some negative heat in recent years, it’s one that makes the markets accesible to new traders with little funds!

Leverage is like a short-term loan a broker gives a trader to allow for more buying power. Laws vary around the world, but in the Unites States, brokers are allowed to give traders fifty-to-one leverage. This means that whenever a trader puts $1 into an investment, a broker will match it with $49. This leverage is a great advantage afforded to currencies traders, as it can significantly expand a trader’s profit potential.

Let’s take a quick look at how leverage works:

You see indications that the US dollar is going up in comparison to the Japanese Yen. So you want to purchase 1 regular lot, which is going to cost you $100,000. Your broker, however, has given you 100 to 1 leverage. This means that you can borrow $99,000 from your broker as long as you have at least 1% of the lot size in your account.

Since you were buying at a 1% margin, $1000 US dollars are set aside so that you can open up the trade. You now control $100,000 US dollars worth of Japanese Yen. Let’s assume the exchange rate does indeed rise one cent and you close your position. At first glance this might sound like just a slight increase, but that seemingly insignificant climb earned you a cent for every dollar you had leveraged. You made roughly $1,000 US dollars.

We can simplify this idea by thinking about a home loan. I don’t have the money to buy a $200,000 home outright, but I do have $20,000. I can use that $20,000, or 10%, as a down payment, and the mortgage lender will match it with the remaining 90%. Then, if the house’s value has appreciated in five years, I can claim a profit! However, if the house depreciates to $150,000, not only do I have to take the loss, I still have to pay back my loan.

Amplifying a movement’s effect works two ways; with greater profit potential comes greater risk, so losses can be very large as well. With this in mind, it’s not hard to understand why Apiary teaches strict risk management methods!

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With Christmas 2012 now behind us, most people turn their attention to the new year. Many will make New Year resolutions to better themselves and their families. If one or more of your New Year resolutions for 2013 are financial related, we encourage you to consider seven possible resolutions to help you avoid your own personal fiscal cliff.

Resolve to diversify your income. You can diversify your money by taking a small portion of your income and putting it to work for you in other investments. Doing so will put your money to work and give you additional forms of income in addition to your job earnings. Even $50 – $100 more per week in earned income can have a significant impact on your personal finance situation. It allows you to trade money for money instead of just time for money.

Resolve to use leverage. Like any industry that uses tools, leverage is the tool of choice in the financial world. Using small amounts of collateral or money deposits to control larger amounts of investment gives your money a bigger bang for your buck. A lot of people don’t understand what leverage is or how to use it. If you resolve to learn how to use it properly, it can become a powerful tool to allow you to do things with your personal investments that you couldn’t do before.

Resolve to diversify your risk. Risk diversification is key to financial success, but most people fail to diversify risk correctly by forgetting most of their assets are in U.S. dollars. Diversifying some of your assets in foreign denominated currency can add that last bit of safety you need in case of a deterioration of the U.S. dollar.

Resolve to invest in yourself. You don’t need to eat the entire financial elephant in one sitting, instead commit to investing a small amount of time each week learning new financial strategies and concepts. In just a few short weeks, your new found knowledge can sharpen your financial skills and senses.

Resolve to follow your personal investing style. Just as certain physical traits are more conducive to different sports or certain personality traits are helpful in different professions, each person has financial traits conducive to different styles of financial management – financial traits that are good for success. Learn what makes you tick and invest based on your personal financial trait.

Resolve to always pre-calculate your risk of loss. Any time you put money to work, there is a risk of loss. Risk of loss should not be a problem if you correctly calculate the risk before you invest and are financially willing to accept some predicted loss. A good investment is one where the potential gain is greater than the pre-calculated loss.

Resolve to mix-up your markets. There are more markets than just the stock market – or the mutual fund market. There are five separate and independent financial markets: stocks, bonds, derivatives, commodities, and currency. Not all markets move the same way at the same time. This opens up new opportunities for profit as well as protection. Learning what the other markets are and their structure and advantages can give you a leg up in your financial future.

Apiary Fund is a great source for you to use in achieving these and many other resolutions in 2013 that can help you shore up your finances and supplement your income. If nothing else, it provides great training and education on how to successfully trade currency. Once training is complete, you can supplement your income by becoming an Apiary trader. There is no risk, no investment required – you are given an account to trade Apiary’s funds and share in the profits of your successful trades.

Disclaimer

Investing in securities, currencies, and/or contracts associated therewith carries inherent risks. No person, institution, or entity, including the Apiary Investment Fund, can guarantee a return on investment for such transactions. Neither the Apiary Investment Fund nor its representatives will recommend the purchase, sale, or transaction advice for a specific security.